• Market:  May 2006 Silver (SVK6)
• Tick value: 1 cent = $50.00 
• Option Expiration: 04/25/06 This trade is short term on purpose!
• Trade Description: Bear put Spread
• Max Risk: $500
• Max Profit:  $2000
• Risk Reward ratio 4:1

Buy one May 2006 Silver 12.00 put, while selling one May Silver 11.50 put, for a combined cost and risk of 10 cents ($500) or less to open a position.

Technical / Fundamental Explanation
Silver has been on fire. The run we have seen from $10.00 to 13.00 in just the past few weeks has been a classic blow off type of move. I mean come on, since when are 50 cent ranges per day in silver the norm, other than during a blow off?! So if you can't tell I am calling a temporary top here. Long term I remain a bull, but to be able to maintain this up trend we need a shakeout, pullback, consolidation, or whatever you want to call it. Bottom line here is metals need to cool to be able to continue in the long run. The CPO model I use is what lead me to this trade, those of you who have seen this model work know that CPO is rarely wrong. It's timing can be a bit off but overall if it says the market is coming down then it is very likely to happen and it has been screaming sell for the last 24 hours. I am short spot silver from 12.95 on a signal that CPO gave me late last night. This trade is short term because this pull back should be short term. Remember, markets almost always fall at least twice as fast as they came up, so silver should be a wild ride for the next few weeks at least. Trying to catch this move with a futures contract is possible but only for traders with deep pockets and lots of coffee as these market require constant monitoring if you are in futures. Trust me on this, I haven't slept for more than a few hours the last few nights due to trading these metals, much of the action in metals takes place in Asia while we sleep here in the USA. Silver hitting $13.00 last night (4/11/06) during the "Asian session" is a perfect example of this. This is one of the lowest risk ways we can come up with to try and make money on this correction. This trade can also be used as a partial hedge for those of you still long silver.

Profit Goal
Max profit assuming a 10 cent fill is 40 cents($2000) giving this trade a 4:1 risk reward ratio. Max profit occurs at expiration with Silver trading anywhere below 11.50.

Risk Analysis
Max risk assuming a 10 cent fill is $500. This occurs at expiration with the Silver trading above 12.00.

Matt Odom is the Managing Partner and Energy Analyst and Derek Frey is Head Trader at Odom & Frey Futures & Options.

Disclaimer
Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options.